Question

Quick Mail completed the following transactions during 2014: Nov. 1 Paid $ 4,500 store rent covering the three-month period ending January 31, 2015. 1 Paid $ 3,200 insurance covering the four- month period ending February 28, 2015.Dec. 1 Collected $ 4,800 cash in advance from customers. The service revenue will be earned $ 1,200 monthly over the four-month period ending March 31, 2015.1 Collected $ 5,400 cash in advance from customers. The service revenue will be earned $ 1,800 monthly over the three- month period ending February 28, 2015.

Requirements 1. Journalize the transactions assuming that Quick Mail debits an asset account for ­prepaid expenses and credits a liability account for unearned revenues. 2. Journalize the related adjusting entries at December 31, 2014. 3. Post the journal and adjusting entries to the T-accounts, and show their balances at December 31, 2014. (Ignore the Cash account.) 4. Repeat Requirements 1–3. This time debit an expense account for prepaid ­expenses and credit a revenue account for unearned revenues. 5. Compare the account balances in Requirements 3 and 4. They should be equal.